Obama budget impacts direct payments, conservation program

Farm commodity prices are high, expectations for the 2011 crop year optimistic and producers are finalizing their cropping acreage breakdown. At the same time, spending deficits remain unsustainable, the U.S. economy remains in a low gear and a record 44 million Americans – one in eight – were on food stamps late in 2010.
Into this situation, President Obama released his fiscal year 2012 budget (which begins on Oct. 1). Early reviews were mixed, with Republicans accusing the White House of largely side-stepping the deficit.

Farm commodity prices are high, expectations for the 2011 crop year optimistic and producers are finalizing their cropping acreage breakdown. At the same time, spending deficits remain unsustainable, the U.S. economy remains in a low gear and a record 44 million Americans – one in eight – were on food stamps late in 2010.

Into this situation, President Obama released his fiscal year 2012 budget (which begins on Oct. 1). Early reviews were mixed, with Republicans accusing the White House of largely side-stepping the deficit.

For agriculture, among the president’s proposals:

• $2.5 billion in direct payment cuts over 10 years (House Republicans have proposed no cuts to commodity programs).

• A drop in farm subsidy eligibility from the current $750,000 in adjusted net income to $500,000.

• Further, those with off-farm income will see eligibility for subsidies drop from an adjusted net income currently of $500,000 to $250,000.

• A proposed per-farm cap for commodity program direct payments from $80,000 a year to $60,000 a year for a married couple.

• Bucking the trend to cut: a $52 million increase in food and nutrition programs (House Republicans have proposed cuts of $780 million to discretionary food programs).

• A $1 billion mandatory spending cut in the Environmental Quality Incentives Program (EQIP), the Conservation Stewardship Program (CSP), and the Wetlands Reserve Program (WRP). On this, the Environmental Working Groups claims Obama would “permanently eliminate” over one million acres from CSP, WRP and the Grassland Reserve Program.

“The administration’s proposed budget makes significant cuts to rural development programs, which were identified as a key component of a vibrant rural America during the presidential elections of 2008,” said Roger Johnson, National Farmers Union president in response to the White House budget. “Cuts were also announced for agricultural research efforts and the Commodity Credit Corporation. Removing these dollars from the baseline for the next farm bill will make the legislation even more difficult to write. Investments in a stable and secure food, fiber and energy supply ought to be of the utmost importance because these investments create a thriving rural economy and are critically important to our national security.”

Seeking “balance”

Vilsack was reminded that major U.S. commodity groups oppose a means test for farm payments.

“In terms of the means test, this is the reality,” said Vilsack. “You have on the one hand, a national consensus – Republican, Democrat, independent, whatever – that we have to get the deficit under control. So, you’ve got to make some tough choices and decisions about precisely where you can look at reductions.

“At the same time, there is an acknowledgment of the need, based on the fact that in certain commodity circumstances or certain areas of the country or certain size operations are struggling or having greater difficulty than the general ag economy. So, you do need a safety net, you do need loan programs, you do need crop insurance programs, you do need disaster programs, and, to a certain extent, you need some kind of payment structure.

“The question is: who should get those payments given the current … reality of a very strong ag economy, generally – particularly for larger producers – with cotton prices up, with corn and bean prices up, wheat prices relatively strong? Who should receive the benefit of those payments?

“Budgets are a series of tough choices. And this budget is one of the toughest budgets all of us have faced.”

There was no counter-cyclical payment in 2010 and the money allocated wasn’t spent. How will such unspent funds be tallied?

“The counter-cyclical (situation) reflects the reality … in the 2011 circumstance. We don’t have a budget yet in 2011 so it’s kind of tough to compare the current year because we flat-out don’t have a budget.

“But the budget we’re proposing doesn’t provide for any counter-cyclical payments based on where commodity prices, and so forth, are.”

Asked about the House Republican agriculture budget proposal, Vilsack said he “appreciates that everyone is serious about tackling these deficits” but cautioned that budget cutting must not kill needed economic growth.

“We have to be smart … and responsible how we go about it. We have to make sure we don’t compromise our ability to invest in growth opportunities. The growth opportunities in the 2012 budget are biofuels, additional research on livestock … and crop production and protection, work potentially in conservation, ecosystem markets and exports. Those are all growth opportunities … and we want to make sure we don’t jeopardize our capacity to grow our way out of this deficit in addition to cutting our way out of the deficit.

“It’s a balance. So, we’ll work with our friends in Congress … to try to find where that proper balance is.”

Safety net

Vilsack’s comments on direct payments will surely perk up interest among
larger farm operations. On Monday, “we released our income forecasts for
2011. What that basically showed is that while there’s overall income growth in
agriculture it isn’t necessarily equitably distributed among all sized
operations.”

Even so, “the safety net is a very, very important part of our overall commitment to agriculture and in this country. … But it needs to be targeted and focused on the people who need it the most.

“With incomes rising, roughly, 30 percent and some of that increase being directed at some of the larger operations, we feel this is a proposal that merits consideration. During the last couple of years, there has been some indication from (members) of the House Agriculture Appropriations Committee – particularly on the Republican side – in some interest in this. So, we’ve proposed it again in hopes of getting consensus.

“To me, it’s really about making sure the safety net does what it needs to do. And, at the same time, we need to be focused, as well – not just on reducing budgets in this respect but also increasing investments and ways we can help producers to sell more.”

Thus the reason for the Obama administration’s “promoting additional export assistance because that’s targeted towards the larger commercial enterprises. It’s the reason why we continue to focus on regional and local food systems because that helps the small producer. And it’s the reason why we focus additional resources on things like biofuels because that – and conservation payments -- can be targeted towards folks in the middle.

“If you understand the breakdown of size-of-operation, commodities and so forth, you can see there is a need for a safety net. But it needs to be targeted and focused.”

Outbreaks and earmarks

Diseases and pest infestations are a constant worry in agriculture. With many in D.C. swearing off “earmarks” how can funds needed to fight an outbreak be secured?

“Within APHIS, particularly, we invest roughly $1 billion a year in a variety of efforts to eradicate, prevent or mitigate the impact of pests, invasive species and diseases,” said Vilsack. At the same time, we’re also focusing a significant amount of our research dollars on additional research in these areas.”

What the USDA attempts is to “make an informed judgment on what is the best strategy for dealing with a particular pest or disease. There are times when our work is successful – which means we can reallocate or redirect resources to a particular disease or pest causing a significant problem. We’ve had some success with screwworm, some success with some cotton pests.”

On the flipside, “we see the gypsy moth and the grapevine moth that are causing problems and issues. So, we may have to redirect resources to address those.

“There may be circumstances where we thought eradication was the best (approach) but isn’t working well. Maybe we should be minimizing the impact of one disease and taking resources and directing (them) to something where we can have even greater success.”

Vilsack doesn’t believe it “necessarily requires a member of Congress to specifically earmark something that goes into their district. The earmarks we’re talking about eliminating are essentially building projects – some of which may very well be very, very important for the government to have. But it ought to be discussed in the context of a national need not necessarily just as a congressional district’s need.”

MAP and exports

Last year, the Market Access Program was targeted for a 20 percent cut. Is the program intact for FY 2012 budget year?

“To be candid, there was a proposal to reduce it last year. But it was offset by increases in other export assistance programs. We hadn’t provided additional resources for cooperators for some time and felt there needed to be a proper balance.

In the current budget, “we’ve kept the MAP at its budgeted level from last year so there’s no reduction. And we’ve actually added an additional $20 million to our national export initiative efforts to see if we can get more resources to cooperators, more opportunities for trade shows and exhibits. Why? Because we’re seeing a very, very strong demand for American agricultural products. That’s one reason we’re seeing good prices, right now, for a lot of our commodities and livestock.”

“I want to be careful how I say this because there are ways you can manage reductions without necessarily impacting folks who obviously want and need employment opportunities.

“We have normal attrition that occurs every year. We have a very aggressive process improvement effort underway. That identifies ways we can do our work more efficiently, which can free up resources. And we have a commitment to technology that makes us able to do our jobs more effectively and efficiently.

“When you combine all of those and look at management tools like early retirement programs and things of that sort, you can manage the reduction of a workforce without necessarily focusing on layoffs and things of that nature. That’s what we propose to do.”

Attrition occurs annually. “Rather than filling those jobs – or filling those jobs with a person at the same level – there are ways we can look at our supervisor-to-employee ratio. These are all management techniques and processes that are important to do…

“But sometimes it takes time to institute them. This budget reflects a commitment to process improvement, to using technology, to taking a look at decisions we make when folks retire.”